Fitch Affirms Askrindo at IFS ‘AA+(idn)/BB+’; Outlooks Stable

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, October 27 (Fitch) Fitch Ratings Indonesia has affirmed PT (Persero) Asuransi Kredit Indonesia’s (Askrindo) National Insurer Financial Strength (IFS) Rating of ‘AA+(idn)’. Fitch Ratings has also affirmed the company’s IFS Rating of ‘BB+’. The Outlooks are Stable. ‘AA’ National IFS Ratings denote a very strong capacity to meet policyholder obligations relative to all other obligations or issuers in the same country, across all industries and obligation types. The risk of ceased or interrupted payments differs only slightly from the country’s highest rated obligations or issuers. KEY RATING DRIVERS The company’s ratings reflect Askrindo’s 100% state ownership and history of government support through a series of capital injections over the last five years. Askrindo is one of the two institutions mandated to provide credit guarantee services in the form of Kredit Usaha Rakyat (KUR), or People’s Business Credit, which was established mainly to support micro, small and medium enterprises. The ratings also takes into consideration Askrindo’s high business concentration risk, with its entire book of business sourced locally, and business focus on KUR, making it vulnerable to Indonesia’s economic conditions. The ratings also consider Askrindo’s market position as a leading credit insurer with robust capitalisation and healthy financial performance. Askrindo is one of the leading credit insurers and non-life insurers in Indonesia with a market share of around 4.67% of the total industry’s gross written premiums at end-2014. The company’s capitalisation, as measured by its risk-based capitalisation (RBC) ratio, has been maintained at a strong level. Its RBC ratio was 608.6% (on a standalone basis) as of end-August 2015, much higher than the minimum regulatory requirement of 120%. Fitch expects Askrindo to maintain a sound capital buffer to support its underwriting and business expansion. The company has maintained a favourable underwriting margin with its combined ratio staying below 90% as of end-August 2015, based on its standalone financials. Fitch expects the company to evaluate at regular intervals the impact the terms and conditions and standard operating procedures of its KUR business has on its underwriting results so as to maintain sound operating profitability. Askrindo aims to enhance business monitoring and increase cooperation with banks to minimise the volatility of its underwriting performance, including swings resulting from changes to the KUR scheme. For example, the tariff for the KUR scheme was reduced effective in 2015. RATING SENSITIVITIES Key rating triggers for a downgrade include weakening of government support or downgrade of Indonesia’s sovereign rating (BBB-/Stable). A significant deterioration in Askrindo’s financial fundamentals, such as weakening market franchise, financial performance and capitalisation relative to its business profile, with combined ratio above 100% and RBC ratio below 300% on a prolonged basis, could also lead to a downgrade. A rating upgrade is unlikely in the near term. Contact: Primary Analyst Thomas Ng (International Rating) Analyst +65 6796 7224 Fitch Ratings Singapore Pte Ltd. 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Cheryl Evangeline (National Rating) Associate Director +62 21 2988 6814 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Secondary Analyst Cheryl Evangeline (International Rating) Associate Director +62 21 2988 6814 Committee Chairperson Siew Wai Wan Senior Director +65 6796 7217 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(idn)’ for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com. 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